Abbott Austerity to See Spending Cuts in Australia Budget

Australian Prime Minister Tony Abbott is staking his Liberal-National coalition government’s popularity on the push for a surplus of 1 percent of gross domestic product within a decade as polls show his coalition trails the Labor opposition. Photographer: Jason Alden/Bloomberg

May 13 (Bloomberg) -- Australian Prime Minister Tony
Abbott’s government delivers its first budget today since
winning office in September, aiming to rein in a record fiscal
deficit through spending cuts and new revenue measures.

Reduced family-welfare payments, cuts to government
services and asset sales are expected in the annual budget, to
be delivered by Treasurer Joe Hockey at 7:30 p.m. in Canberra.
He’ll announce a A$30 billion ($28 billion) deficit for 2014-15
after recording a A$46 billion shortfall this fiscal year,
according to the median estimate of 10 economists surveyed by
Bloomberg News.

Abbott is staking his Liberal-National coalition
government’s popularity on the push for a surplus of 1 percent
of gross domestic product within a decade as polls show his
coalition trails the Labor opposition. Today he confirmed the
government will impose a temporary levy on higher-income earners
to help erase a A$123 billion projected shortfall for the four
years through June 2017.

“This government has boxed itself into a corner by
promising to cut the deficit, deliver no new taxes and above all
to keep its word,” said Zareh Ghazarian, a Melbourne-based
professor at the Monash University School of Political and
Social Inquiry. “New governments usually use their first budget
to get all the bad news out of the way early so they can throw
sweeteners at voters closer to the election.”

Details Leaked

Many of the details of the budget have already been leaked
or announced. Government-owned assets to be put up for sale
include the Royal Australian Mint and an arm of the nation’s
corporate regulator, the Australian Financial Review said
yesterday, without citing sources. About 16,000 public-service
jobs will be axed, while government agencies such as the
Australian Renewable Energy Agency and National Water Commission
will be scrapped, it said.

In an interview with a Sydney radio station today, Abbott
confirmed the introduction of a deficit-reduction levy, along
with an increase in the fuel excise, without giving details. The
opposition Labor party says Abbott is breaching an election
promise not to increase taxes in the budget.

“There’s got to be some short-term pain but it’s pain with
a purpose,” Abbott said in the interview. “We have a terrible
problem. We are borrowing A$1 billion a month just to pay
interest on our borrowing.”

Commission of Audit

Hockey’s bid to end what he calls “the Age of
Entitlement” received backing from a government-commissioned
audit released this month that recommended reducing family tax
benefit and tightening eligibility for unemployment and
disability benefits. The commission called for higher payments
for each government-funded visit to the doctor and said young
people on jobless benefits for longer than a year should have to
move to where work was available. It also suggested future
growth in the minimum wage be contained to improve job
opportunities.

Hockey has already announced the retirement age will rise
to 70 from 65 by 2035, along with measures to cut red tape,
reduce the civil service by at least 12,000 positions, lower
subsidies for automakers and cancel handouts to parents of
school children. The government’s plan to scrap a carbon price
and mining profits tax have been stalled by opposition lawmakers
in the Senate.

Australia’s gross debt was 28.8 percent of GDP last year,
the smallest outside of Estonia among advanced economies,
according to International Monetary Fund data. That compared
with 105 percent for the U.S. and 243 percent for Japan,
according to the IMF.

“It’s really going to be an austerity budget,” Alan
Oster, chief economist for National Australia Bank Ltd., said in
an interview on Bloomberg Television today. The economy “is not
as bad as they’re making out. Australia doesn’t have a fiscal
crisis but what they’re trying to do is put it back on a
sustainable path.”